Partnership had worked to acquire Akron nonprofit

Jan. 15, 2014

Cleveland Clinic exercise physiologist Audra DiRauso works with a patient during during a cardiac rehabilitation class. Cleveland Clinic, one of the nation's leading research hospitals, is in a partnership with Community Health Systems. / Mark Duncan / File / Associated Press

Written by

Shelley DuBois

The Tennessean

The first proposed acquisition by two newly partnered, massive health care entities fell through last week. Franklin’s for-profit hospital company Community Health Systems and the Cleveland Clinic, Ohio’s world-renowned research hospital, were having trouble coming to an agreement on the planned purchase of Akron General Health System, a nonprofit network in Ohio.

When the final deadline came without an agreement, Akron walked.

“I have a tremendous amount of respect for both of those companies. I don’t have any bad feelings for either one of them,” said Dr. Thomas Stover, CEO of Akron General. “But we can’t sit around and watch the game while these big guys play.”

CHS and Cleveland Clinic, which launched their partnership last March, had worked with Akron since August. Despite everybody’s mutual respect, the deal didn’t work, which is meaningful for the industry.

It matters, in one respect, because of the sheer size of the providers: Community Health Systems is on its way to becoming the largest for-profit hospital chain, at least in number of facilities. Once the deal with Florida’s Health Management Associates is finalized, CHS will operate more than 200 hospitals in the U.S. The Cleveland Clinic has 27 facilities in Ohio, as well as hospitals in Florida, Nevada, Canada and Abu Dhabi. Every year, people travel from all over the world to seek care at its flagship hospital in Cleveland.

Entire industry is watching

Besides sheer scale, the outcomes of deals like this matter because the entire health care industry is watching for success stories in terms of collaboration. The industry is consolidating, morphing and combining in new ways to better cope with a sea change in health care, some of which was triggered by the Affordable Care Act.

Furthermore, this structure in which a nonprofit health care company works with a for-profit is a fairly new dynamic, according to Kit Kamholz, a managing director at Illinois-based health care advisory firm Kaufman Hall.

It is not unheard of, though. In 2011, Duke University Health System and Brentwood-based for-profit LifePoint Hospitals joined to form Duke LifePoint, a hybrid health system that now has hospitals in Michigan, North Carolina and Virginia. It’s a prominent example of this type of structure, to a T: an academic medical center partnering with a Nashville-based public company. “The CHS-Cleveland Clinic model was just a replication of that,” said Stover, who considers that one a success.

But for whatever reason, the LifePoint model didn’t translate to CHS’s relationship with the Cleveland Clinic. Certainly, it’s not an easy thing, ever, for companies with strong corporate cultures to form a joint venture. In fact, Kamholz said, it may be one of the most difficult kinds of negotiations possible. “It’s much more complex to do a joint venture than it is to do an acquisition or a merger.”

And yet, these kinds of complex negotiations will happen more and more. There are good arguments for agreements between three parties: Academic medical centers can use the help from hyperefficient for-profits, and for-profits can leverage the stellar branding and best practices of some nonprofit hospitals. Smaller networks can use the resources from access to both.

CHS has other similar partnerships in the works. “CHS remains in discussions toward a possible equity partnership with MetroHealth in Michigan and we continue to negotiate terms of an acquisition of Sharon Regional Health System under our non-binding letter of intent with that health system,” said Tomi Galin, a spokeswoman for CHS.

And, like Stover at Akron, CHS has no hard feelings toward the Cleveland Clinic. Galin said that the partnership with Cleveland Clinic is still in place, and the two organizations continue to work together to advance quality, especially around cardiovascular services.

Everyone’s cordial behavior only underlines the complexity of novel joint ventures and partnerships: Just because every health care company sitting at the table has the same goals doesn’t mean it’s easy to achieve them.